As a contractor, you make money by bidding on jobs, securing projects, and finishing them on time and to the satisfaction of the client. How do you evaluate and manage risk on your construction projects? You need to hire capable workers to help fulfill your obligations. It’s best to hire people you’ve worked with before who you can entrust to get to work on time and get the job done to contract specifications.
It’s your name and your business are on the line whenever things go wrong. One way to protect yourself is with bid, performance, and payment bonds, all three are types of surety bonds designed to make sure that, if anything does go wrong, the surety company will stand behind you every step of the way.
A surety bonds protects you and your company from financial loss in the event of any contractor failure to meet the terms and conditions of the project. In this industry, things often can and will go wrong. A job may seem like a piece of cake, but everything from equipment failure to weather delays can play a pivotal role in taking you off course in terms of meeting your completion deadlines.
How surety bonds work
For those who don’t quite understand the process, the surety company and its financial resources stand behind the contractor, which enables the contractor to enter into a contract with the client. You receive surety bonds from a financially responsible surety company licensed to transact surety. These bonds provide protection by keeping high standards and screening out unqualified contractors.
Before a contractor can obtain a surety bond, they undergo a rigorous prequalification process, called “underwriting”. This is to determine whether they are capable of performing to the specifics of a given contract.
When a surety underwriters performance and payment bonds, it stands behind the contractor’s promise to perform the work according to the contract’s terms and conditions, and pays subcontractors, laborers, and material suppliers. As in most states, the surety bond is required of the contractor accepting the work, but its main purpose is to protect the customer when things go awry.